“Real opportunities for profit only exist in the face of genuine uncertainty”
— Risk, Uncertainty and Profit (1921) by Frank Knight
In this famous book he talked about two types of uncertainty:
- Uncertainty Risk: In this case we know the potential otcomes as well as the odds of these outcomes in advance
- Genuine Uncertainty: When we don’t even know the possible outcomes in advance, let alone their probabilities
If we want to innovate successfully, we not only have to deal with uncertainty, we must seek it out, Knight said further.
Two common mistakes that an entrepreneur makes are:
- Act Like everything is just a risk — It greatly increase the chance of failure
- Act like everything is unknowable — We can’t use not knowing as an excuse to not act – because we never know
“Managing risk is pretty straightforward. Managing Uncertainty is trickier”
It’s important to cope with uncertainty effectively, because doing so allows us to go where the opportunities are.
Click to know about the strategies on how to cope with uncertainty.